What Is a Performance Fee?

A performance fee is an extra charge taken only on the portion of gain above a pre-defined threshold return, when a fund exceeds that threshold. It comes not instead of the management fee the fund always pays, but on top of it. The logic is simple: if the fund fails to beat the set target, no performance fee arises at all; it is calculated only when the target is exceeded, and only on the excess. In Turkish it is also called 'başarı ücreti', 'performans primi' or 'getiri ücreti'.

What is the threshold and how is it set?

The heart of a performance fee is the threshold (reference) value. To trigger the fee, the fund must first cross this line. The threshold can be defined in different ways:

• A benchmark (for example an index or a reference return).
• A fixed target rate or a reference interest rate.
• The fund's own highest past unit value (the high-water mark below).

What the threshold is and how it is measured varies by fund, so when reading a performance fee you must first check which threshold is used. Unless the threshold is exceeded, the investor pays nothing for this item.

The high-water mark

The most common calculation method is the high-water mark. Its purpose is to prevent the same gain from being charged twice. It works like this:

• When the fund reaches a new peak (its highest unit share value), that level is recorded as the 'water mark'.
• If the price falls and then rises again, a performance fee is taken only after the price passes the old peak, and only on the new gain above that peak.
• So during a recovery after a decline, a gain that was already charged is not charged a second time.

A simple example: if the fund's unit value rises from 100 to 120, a performance fee accrues on the 20 units of gain above 100 (provided the threshold is also beaten), and the water mark becomes 120. If the fund then falls from 120 to 108 and later climbs back to 118, no fee is taken for that recovery because 118 is still below the old peak. The fee arises only once the price passes 120 again, and only on the new gain above 120.

This mechanism protects the investor: the fund earns a performance fee only when it genuinely creates new value; merely making up a decline does not by itself trigger a fee. Some funds also define a hurdle, requiring the threshold to be beaten by a certain minimum before the fee arises; the calculation frequency (for example periodic accrual) and all details are in each fund's own document.

Which funds have it?

A performance fee appears most often in hedge-style (serbest) funds offered to qualified investors. This is because such funds have a more flexible management approach and an active-return objective; the performance fee aims to tie the manager to that active return. A qualified investor is a category the regulation defines for investors meeting certain financial criteria; because the threshold amount can change by Board decision, no current figure is given here — the criterion itself is what matters.

Most classic, broadly available funds carry no performance fee; they cover their costs mainly through the management fee. The idea behind a performance fee is an alignment of incentives: the manager earns the extra fee only when producing return above the threshold, so the fee is tied to results. But the structure is one-sided — if the fund stays below the threshold the manager takes no performance fee, yet does not share in the loss either. Whether a fund charges a performance fee, and if so against which threshold and at what rate, is disclosed clearly in the fund's prospectus and information documents and on KAP; this information is subject to audit.

Its place in total cost

A performance fee is only one part of a fund's total burden and should not be confused with other items:

• Total expense ratio (TER): shows the annual operating cost of holding the fund as a single percentage; the management fee is the largest item within it. When a performance fee arises, it raises the fund's total cost and is reflected in the fund's reported expense disclosures.
• Withholding tax: this is a tax, not a fund expense; it is taken from your gain when you sell the fund. A performance fee, by contrast, accrues inside the fund when the threshold is beaten.

Remember that a fund's return is published after these deductions: the return figures you see on TEFAS are net. This page does not say which fund should be preferred; it only explains how a performance fee works. To view different funds' fee and return data side by side, you can review the comparison tool or the hedge-style funds category page.